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Flashcards in Income Tax - Tax adjusted trading profit Deck (20)
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What is tax adjusted trading profit?

What are the main components we should focus on?

Adjusted profits -------xxxxx
Less - capital allowances (xxx)
Tax adjusted trading profit -----xxx

Common dis-allowable expenses which should be added BACK?

1. Revenue expenditure are allowed to exempt but, capital expenditure and depreciation is a dis-allowable expense as its relief would be given in CAPITAL ALLOWANCES.

2. Qualifying loan interest to not allowed to exempt as it is ALREADY deducted from EMPLOYMENT INCOME.

3. While royalty payable, irrecoverable debts are allowable NON- TRADE write off is a dis-allowable expense which should be added back!

4. Unpaid remuneration more than 9 months are a dis-allowable expense. As it will most likely NOT be paid to the employee so EMPLOYMENT income WOULD NOT cover it.

5. STAFF entertainment is allowed. CUSTOMERS gifts need to be under $50, no food tobacco or alcohol involved, SHOULD have an advertisement.

6. Legal and professional charges ONLY related to trade is allowable.

7. Interest paid on borrowings for trading purposes and overpaid tax is allowed BUT, interest paid on UNPAID taxes is not allowed.

8. Rental on cars with CO2 emission exceeding 130g is disallowable upto 15% and tax SHOULD be paid on that.

9. Premium is disallowed and taxable BUT, allowable amount is ((51-n)/50 * Premium) / N ). (TAX FREE amount)

10. Fines and penalties only for employees is allowed.

11. National insurance contribution is Dis-allowed as it is ALREADY deducted under EMPLOYMENT INCOME. However, employee contributions are allowed.

12. PRIVATE use of cars? Then dis-allowable amount is only the private used apportionment of the cost.

13. Salaries PAID in EXCESS should be taxed so it is dis-allowable. However, the normal rate should be allowed to deduct.

14. PRIVATE REMOVAL of items? Market value should be disallowed. So if owner paid for cost, only the difference would be taxable.

15. Any expenditure not related to trade is taxable.

Accounting profits not taxable under trading income -
1. Capital gains.
2. Interest, dividend and property income.
3. Income exempted from tax

what should be focus on CASH basis accounting?

1. Only to be used if less profit is less than $82,000.
2. Should be ceased if last year is $164,000 and current year being over $82,000.
3. Also, it is ceased where cash basis is not needed and election is made for accruals basis for accounting.
4. Sale of plant and machinery is income and purchase is expenses!
5. Private use of premises - 350 for 1 occupant, 500 for 2 occupant and 650 for 3 occupant will be an expense.
6. Any trading losses can be settled against future profits for the next year.


Is capital expenditure a dis-allowable expense?

Is revenue expenditure an allowable expense?

Capital allowances and depreciation (related) IS a dis-allowable expense as it is given relief under capital allowances.

Revenue expenditure IS allowable.

Any improvement for an asset is dis-allowable while any repair is allowable.


Is qualifying loan interest dis-allowable or an allowable expense?

It is a dis-allowable expense as it is already deducted in EMPLOYMENT INCOME.


Is trade write offs an allowable or a dis-allowable expense?

it is allowable as it is a trading expense.


For unpaid remuneration up to how many months is it allowable to deduct as an expense?

9 months. If it is more than 9 months it becomes a dis-allowable expense as it will not be taxed under EMPLOYMENT INCOME.


Entertainment staff is allowed?

How about customers?

As entertainment of staff is related to trading it is allowed.

Customers should meet the following to be exempt from tax.

1. Less than $50.
2. No food tobacco or alcohol.
3. Gift should be marketable


What donations are disallowed or allowed?

Only donations related to promote trading are allowed to exempt (NOT made under gift aid scheme).

Gift aid and national charity donations are dis-allowable.


Legal and professional fees? What is allowed and dis-allowed under this?

Related to trade and NOT capital items are allowed.

Additional allowable fees -
1. Renew of short lease (50 years or less)
2. Legal fees on breach of contract
3. Legal fees on recovering bad debts


Is interest paid on borrowings allowed?

What about interest on unpaid taxes?

For borrowings it is allowed.

For unpaid taxes it is dis-allowed.


Lease on cars exceeding how many grams would be taxable at 15%?

130 gram of CO2 emission.


Premium paid on grant of lease is allowed?

If it is not how much is allowed?

It is disallowed. But, there is an allowable amount of ((51-n)/50)*(premium))/n.


Private use of cars is it allowable?

No it is dis-allowable. ONLY the proportion owner used for business purpose.

But, for EMPLOYEES the full amount even if it is private is allowed.


Is interest received on overpaid tax is....?

Dis-allowable it should be taxed.


Salary paid to the family is disallowed or allowed?

Only the extra portion paid above other employees are disallowed.


If owner removes good what is the disallowed amount?

Only the amount unpaid by the owner. For example if owner paid for cost of good then, tax would be imposed on the portion up to the market value of the product.


Pre trading expenses is allowed up to how many years?

7 years.


Any expense not relating to trading will be...?

Disallowed to exempt.


What are accounting profits not taxable under trading income?

1. Interest income, dividend income and property income.
2. capital gains from sale of fixed assets.
3. Income exempted from tax.


What is the VAT tax threshold for cash basis accounting?

When should it be ceased.

VAT threshold 82,000.

If current year exceeds VAT threshold and double is exceeded the last year.


In cash basis accounting purchase of capital assets would be....?
Sale of capital assets would be...?

Purchase of capital assets would be expenses.

Sale of capital assets would be an income.

(Land and motorcars not included)